Dive Brief:

• Consumer confidence fell this month to the lowest point since July 2022, persisting below a level that usually presages recession during the following 12 months, the Conference Board said Tuesday.
• Expectations for employment and business conditions weakened, with just 12.5% of respondents predicting an increase in job openings six months in the future — the gloomiest outlook since May 2016, according to Conference Board data.
• Consumer “expectations fell and remain below the level which often signals a recession looming in the short term,” Ataman Ozyildirim, senior director for economics at the Conference Board, said in a statement. “Consumers became more pessimistic about the outlook for both business conditions and labor markets.”

Dive Insight:

The slump in consumer sentiment has coincided with a pullback in lending and credit in recent months. Turmoil in the banking system in March may prompt further tightening, Federal Reserve Chair Jerome Powell and other central bank policymakers have said in recent weeks.

Fed officials will weigh a change to monetary policy at a two-day meeting beginning May 2 by assessing a range of data including consumer spending, which accounts for about 70% of U.S. gross domestic product.

Manufacturing and the job market have cooled since the Fed in March 2022, seeking to curb high inflation, began the most aggressive pullback in monetary stimulus in 40 years.

Manufacturing output excluding autos fell 1.3% last month compared with April 2022. Both the Fed and the National Association for Business Economics have noted an easing in the unusually tight labor market in recent weeks.

Employers hired 236,000 workers last month, the smallest increase in two years although still high by historical standards. Unemployment fell to 3.5%.

The central bank has yet to engineer a steady, significant decline in inflation to its 2% target even after raising the federal funds rate from near zero to a range between 4.75% and 5%.

The core Consumer Price Index excluding food and energy, a signal for future inflation, rose 5.6% last month on an annualized basis compared with 5.5% in February, fueling expectations that the Fed on May 3 will raise the main interest rate by 0.25 percentage point. The CPI including volatile food and energy prices increased 5% in March.

The average expectation for inflation over 12 months fell 0.1 percentage point to 6.2%, the Conference Board reported.

“Although that level is down substantially from the peak of 7.9% reached last year, it is still elevated,” Ozyildirim said.

Investors on Tuesday saw 77% odds that the Fed at the coming meeting will hike the main interest rate by a quarter point, according to the CME FedWatch Tool, which calculates expectations based on trading in interest-rate futures markets.

The combination of higher borrowing costs and tightening credit standards has prompted forecasts of a downturn.

Fed economists, citing banking system turmoil, advised policymakers that a mild downturn is likely to begin later in 2023, discarding their December forecast for sustained growth, according to minutes of a March 21-22 meeting released Wednesday.